Colleges show declining fiscal health

Among public schools, Wright State now trails only Central State in the state’s financial rankings.

University spending in the face of stagnant tuition revenue is taking a toll on the financial health of many of Ohio’s four-year public universities.

An I-Team analysis of state data designed to measure the financial health of Ohio’s 13 public four-year universities found nine saw declining scores in the most recent data available.

Wright State University’s fiscal health dropped from solid financial footing years ago to the second most imperiled in the state, the data shows.

Central State held the lowest score, though it was one of the few schools that saw its finances improving as it claws its way out of “fiscal watch.”

The numbers show several Ohio institutions need to right their financial ships, or else they could find themselves unable to pay their bills in the next three to five years, according to Richard Vedder, an economist at Ohio University who specializes in higher education funding.

“What that may mean, in some cases, they may have to end some academic programs,” Vedder said. “Somebody might wake up one day and say, ‘Why do we need Central State and Wright State 20 minutes apart from each other, or Kent State and Akron State 20 minutes

The Ohio Department of Higher Education rates schools on a scale from 0 to 5 every year – referred to as the Senate Bill 6 score, after the bill that created the ranking in 1997. The complicated formula takes into account measures such as each school’s revenue, debt and reserves. If a school falls below 1.75 on this scale for two years – as Central State did last year – it lands in “fiscal watch,” putting it under tight state monitoring and requiring a state-approved plan to balance its books.

“The goal of Senate Bill 6 is to provide financial accountability and an early warning system about a college/university that might be heading into financial trouble,” said Ohio Department of Higher Education Spokesman Jeff Robinson.

“A combination of limited or no tuition increases, enrollment declines, steady state funding, additional regulatory changes and additional borrowing could have a significant impact on the Senate Bill 6 ratios in the future,” he said. “We will monitor the ratios and watch for critical trends in ratio scores.”

Central State’s score shows major improvement. After going into fiscal watch last year, the school implemented a recovery plan and scored a 2.3 in the most recent fiscal year, falling just $500,000 short of getting out of fiscal watch.

But Wright State’s score of 2.4 hit a new low for the school, and university budget documents show officials expect it to fall further. In 2011, Wright State had the third highest SB 6 score in the state.

CSU in fiscal watch

Central State University was placed in fiscal watch last year and remains the lowest-ranking public university under the state’s formula for assessing financial health. But the 129-year-old school has shown dramatic improvement through a recovery plan that cut administrative staff and boosted out-of-state enrollment. TY GREENLEES / STAFF

The Ohio General Assembly passed Senate Bill 6 in 1997 after Central State was rescued from the brink of closure in the 1990s. Last year, CSU and Owens State Community College outside Toledo became the first schools ever put under fiscal watch.

Now Central State officials say they are on the verge of a comeback.

Central State’s vice president over finance and administration Curtis Pettis said the school’s finances were pummeled by declining enrollment — from 2,500 students in 2012 to 1,785 today — fueled largely by financial aid changes that made it harder for students to get financial help.

“As your enrollment drops and your revenue drops, like any institution we ran into financial stress because we weren’t meeting our budgetary targets,” he said.

The fiscal watch designation put the school under intense scrutiny. It mandated a recovery plan by the school and a special state audit of CSU’s finances. If the school didn’t get its books in order in three years, the law allows the state to essentially take it over.

‘You can’t turn it around on a dime’

Central State University’s 129th Charter Day Convocation was held March 1. The ceremony featured keynote speaker Traci E. Bell-Thomas, (left) a 1992 graduate who is a project manager for the Ohio Department of Medicaid, being embraced by Kiera Graham, the current Ms. Central State University (right). Seated at left is CSU President Dr. Cynthia Jackson-Hammond. LISA POWELL / STAFF

Pettis said he’s “hopeful” the school’s SB 6 score next year, which should be calculated this fall, will allow them to request to be taken out of fiscal watch.

Getting there has been a years-long effort. “You can’t turn it around on a dime,” he said.

The school reduced its employee count by 20 percent, cutting only administrative staff, leaving them with about 270 employees. This helped them shave their budget from $48 million to $38 million without cutting classes or programs.

“We kept the faculty, the direct connection to the students we did not touch,” he said.

They also increased recruiting from outside Ohio by getting permission from the state to lower their out-of-state fees more than any other school in Ohio. Instead of $8,000 more a year, non-Ohioans pay only $925 a semester over what Ohio students pay. The school doesn’t get state support for these students either, but recoups the difference through dining and housing fees.

Using low interest federal loans available to historically black colleges and universities (HBCUs), the school in November purchased two residence halls for $13.2 million, creating 199 more beds on campus.

Central State’s financial recovery plan filed with the state in April lists several cost-cutting measures such as infrastructure upgrades to cut energy costs and outsourcing its bookstore to Barnes & Noble.

“There is a future for HBCUs and we feel very confident we will be around another 129 years,” Pettis said.

Lawmaker: audits needed

Some state lawmakers are concerned about whether universities are putting their money to best use. State Rep. Mike Duffey, R-Worthington, has sponsored legislation requiring performance audits at Ohio’s public universities to compare their spending to state and national averages and look for savings.

“(Auditors) are going to find the things the universities don’t want to talk about,” he said, such as cronyism, contract anomalies or spending out-of-line with peer schools. “That stuff has to be pushed to the policy makers and journalists to hold universities accountable.”

Vedder said some schools have gotten in trouble by spending money to attract students in a state that has seen decreases in population and the number of high school graduates.

“One way universities are dealing with this is they’re going out and saying ‘we need to make our campuses look nice, ‘so they borrowed a lot of money,” he said. “What I still refer to as new dorms (are being torn down) to build newer dorms.”

Schools have also hired armies of administrators in recent years, Vedder said, contributing to what the American Association of University Professors maligns as “administrative bloat.”

“I don’t know a university in the United States that couldn’t get rid of 5 to 10 percent of its administrative staff without any great consequences,” Vedder said.

At least one school says its SB 6 drop was according to a plan.

Bowling Green State University saw the biggest drop in fiscal health scores last year. But BGSU President Mary Ellen Mazey said the school set out to take in fewer students, which resulted in a drop in tuition revenue. The reason, she said, was to the school could focus on increasing student performance, which is increasingly tied to state aid.

“I do expect (the SB 6 score) to improve now,” Mazey said. “Our budget looks very strong for the fall.”

Wright State: Depleting reserves

WSU President David Hopkins announced July 19 that the university is pulling out of hosting the first presidential debate, citing costs and security concerns. Wright State ranks second to last for fiscal health among Ohio public schools, according to a state formula that attaches a score based on an institution’s revenue, debt and reserves. DARIN POPE/STAFF

Wright State officials say they are on track to see a 1.1 percent enrollment increase this year, and an increasing number of those students were valedictorians and salutatorians in their high schools.

But university spending in recent years has far outpaced revenues, leaving the school with a yawning deficit. Wright State on July 19 pulled out of hosting the first presidential debate, citing security and financial reasons. After getting little outside help, school officials were concerned the one-night event would force them to dip into an already depleted reserve fund.

WSU chief financial officer Jeff Ulliman said Wright State has yet to see dividends from some of the spending efforts on campus.

“(We were) investing funds in different initiatives that we did strategically in hopes they would have positive enrollment consequences,” he said. “In some realms, such as international students, that has paid off. In most, it has not.”

Reserve funds are a big factor in a university’s SB 6 score. WSU’s reserves were $162 million in 2012 but are expected to be $40 million after a two-year budget remediation approved by trustees in June. That plan calls for cutting $27.7 million from the school’s budget over the next two years — largely through buyouts and attrition — and pulling another $18.9 million out of the reserve fund.

One driver of the shortfall was $4 million spent on student aid that didn’t result in the hoped-for enrollment boost. Other efforts are too new to gauge their success, such as a student success center WSU built with an eye on improving student retention and graduation.

Wright State is looking at one-time methods to bolster its reserves, including selling or leasing unused property such as office space in downtown Dayton. It is also re-negotiating its on-campus soda contract, currently with Pepsi.

“I have no reason to believe we’re not going to continue to be successful and we’re not going to get this situation we’re in under control over the next few years,” Ulliman said.

The school’s ranking may get worse before it gets better. Ulliman expects the school’s financial score to drop slightly next year.

Miami: Looking beyond Ohio

There is no “magic formula” that has kept Miami University’s financial health steadily among the best in the state, said David Creamer, MU’s vice president of finance. Miami made deep cuts in 2008 and 2009, he said, and then held spending down as its reserves climbed to $225 million.

“We don’t look at things in one to two-year horizons anymore,” Creamer said. “We look at things in five- to 10-year horizons.”

The school’s brand — one of its strengths — has also allowed Miami to boost enrollment from outside Ohio, including internationally, Creamer said.

“In order to achieve the types of growth in our application numbers, and to meet our enrollment target, we have to look more beyond Ohio,” he said.

Experts say the increased competition for students — and the rugged economic climate — will force tough choices for some schools. It’s mostly for-profit schools that have been forced to close, but more institutions could contemplate the unthinkable if their financial fortunes continue sinking, according to Creamer.

“Most don’t want to talk about this, but we are already seeing a reduction in the number of higher education institutions and you will see more of that in coming years,” he said.